Income-tax Act,1961
Act No : 43
Section :
Income from property held for charitable or religious purposes 2.
1[11. Income from property held for charitable or religious purposes 2. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- 3[(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of twenty five per cent of the income from such property;] (c) income 4[derived] from property held under trust- (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and ---------------------------------------------------------------------- 1 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989 with effect from 1-4-1989 with some modifications. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987 with effect from the same date. 3 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 4-1976. Earlier, clauses (a) and (b) were amended by the Finance Act, 1970, w.e.f. 1-4-1971. 4 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. ---------------------------------------------------------------------- 1.124 (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income; 1[(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.] 2[Explanation.-For the purposes of clauses (a) and (b),- (1) in computing the twenty-five per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income; (2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of seventy-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount- (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then- (a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount; and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income (such option to be exercised in writing before the expiry of the time allowed under sub-section (1) 3[* * *] of section 139 4[* * *] for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in ---------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 2 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 4-1976. The Explanation was also substituted by the Finance Act, 1970, w.e.f. 1-4-1971. 3 The words "or sub-section (2)" omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 4 The words ", whether fixed originally or on extension", omitted, ibid. ---------------------------------------------------------------------- 1.125 the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived.) 1[(1A) For the purposes of sub-section (1),- (a) where a capital asset, being property held under trust wholly for charitable or religious purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely- (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of such capital gain; (ii) where only a part of the net consideration is utilised for acquiring the new capital asset, so much of such capital gain as is equal to the amount, if any, by which the amount so utilised exceeds the cost of the transferred asset; (b) where a capital asset, being property held under trust in part only for such purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the appropriate fraction of the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:- (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of the appropriate fraction of such capital gain; (ii) in any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset. Explanation.-In this sub-section,- (i) "appropriate fraction" means the fraction which represents the extent to which the income derived from the capital asset transferred was immediately before such transfer applicable to charitable or religious purposes; (ii) "cost of the transferred asset" means the aggregate of the cost of acquisition (as ascertained for the purposes of sections 48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement thereto within the meaning assigned to that expression in sub-clause (b) of clause (1) of section 55; (iii) "net consideration" means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.] ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1971, w.r.e.f. 1-4-1962. ---------------------------------------------------------------------- 1.126 1[(1B) Where any income in respect of which an option is exercised under clause (2) of the Explanation to sub-section (1) is not applied to charitable or religious purposes in India during the period referred to in sub-clause (a) or, as the case may be, sub- clause (b), of the said clause, then such income shall be deemed to be the income of the person in receipt thereof- (a) in the case referred to in sub-clause (i) of the said clause, of the previous year immediately following the previous year in which the income was received, or (b) in the case referred to in sub-clause (ii) of the said clause, of the previous year immediately following the previous year in which the income was derived.] 2[(2) 3[Where seventy-five per cent of the income refer-red to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated, or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:-] 4 (a) such person specifies, by notice in writing given to the 5[Assessing] Officer in the prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years; 6[(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5):]] 7 [Provided that in computing the period of ten years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded.] 8[(3) Any income referred to in sub-section (2) which- (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or 9[(b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or] --------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4- 1976. 2 Substituted by the Finance Act, 1970, w.e.f. 1-4-1971. 3 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 4-1976. 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Substituted by the Finance Act, 1983, w.e.f. 1-4-1983. Earlier, it was amended by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 7 Inserted by the Finance Act, 1993, w.r.e.f. 1-4-1962. 8 Substituted by the Finance Act, 1970, w.e.f. 1-4-1971. 9 Substituted by the Finance Act, 1983, w.e.f. 1-4-1983. ----------------------------------------------------------------------- 1.127 (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited, or, as the case may be, of the previous year immediately following the expiry of the period aforesaid.] 1[(3A) Notwithstanding anything contained in sub-section (3), where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of sub-section (2) cannot be applied for the purpose for which it was accumulated or set apart, the 2[Assessing] Officer may, on an application made to him in this behalf, allow such person to apply such income for such other charitable or religious purpose in India as is specified in the application by such person and as is in conformity with the objects of the trust; and thereupon the provisions of sub-section (3) shall apply as if the purpose specified by such person in the application under this sub-section were a purpose specified in the notice given to the 3[Assessing] Officer under clause (a) of sub-section (2).] (4) For the purposes of this section "property held under trust" includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the 4[Assessing] Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes 5[* * *]. 6[(4A) 7Sub-section (1) or sub-section (2) or sub-section (3) or sub- ----------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4- 1976. 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Ibid. 4 Ibid. 5 The words "and accordingly chargeable to tax within the meaning of sub-section (3)" omitted by the Finance Act, 1970, w.e.f. 1-4-1971. 6 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Prior to the substitution, sub-section (4A), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, read as under: "(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income, being profits and gains of business, unless- (a) the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Central Government in this behalf in the Official Gazette; or (b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution, and separate books of account are maintained by the trust or institution in respect of such business." ------------------------------------------------------------------------ 1.128 section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business.] 1[(5) The forms and modes of investing or depositing the money referred to in clause (b) of sub-section (2) shall be the following, namely:- (i) 2investment in savings certificates as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 3 (46 of 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government; (ii) deposit in any account with the Post Office Savings Bank; (iii) deposit in any account with a scheduled bank or a co- operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co- operative land development bank). Explanation.-In this clause, "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 19704 (5 of 1970) or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 198 05 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); (iv) investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); (v) investment in any security for money created and issued by the Central Government or a State Government; (vi) investment in debentures issued by, or on behalf of, any company or corporation both the principle whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or by a State Government; (vii) investment or deposit in any 6 [public sector company]; (viii) deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long- term finance for industrial development in India and which is approved by the ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 4 Ibid. 5 Ibid. 6 Substituted for "Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956)" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. ------------------------------------------------------------------------- 1.129 Central Government for the purposes of clause (viii) of sub- section (1) of section 36; (ix) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is approved by the Central Government for the purposes of clause (viii) of sub-section (1) of section 36; (x) investment in immovable property. Explanation.-"Immovable property" does not include any machinery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth;] 1[(xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964);] 2[(Xii) 3any other form or mode of investment or deposit as may be prescribed.] ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1984, w.e.f. 1-4-1985. 2 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w,e.f. 1-4-1989. ---------------------------------------------------------------------- 1.130 capital gains arising from the transaction in acquiring the new capital asset, the amount of capital gains so utilised would be regarded as having been applied to the charitable or religious purposes of the trust. 6. While under section 11 (1)(a) the tax will be levied in the year to which the income relates, under section 11(3) the income would be chargeable in the year in which the amounts cease to be accumulated for the specific purpose mentioned. Thus when amounts are taxed under section 11(3) the benefit which would have been available to a trust in respect of 25 per cent of its income or Rs. 10,000 under section 11(1)(a) would also be lost. 7. If a trust desires to accumulate income in excess of the limits specified in section 11(1) the conditions specified in section 11(2) have to be fulfilled in respect of the entire accumulation and not merely in respect of the accumulation in excess of 25 per cent of the income. 5. The business income of a trust as disclosed by the accounts plus its other income will be the income of the trust for purposes of section 11(1). The trust must spend at least 75 per cent of this income and not accumulate more than 25 per cent thereof. Excess accumulation if any will become taxable under section 11(1). 9. Donations received by a charitable trust from the members of the public being capital receipts cannot be regarded as income of the trust. Accordingly donations should be excluded from the income of the trust for the purpose of calculating the accumulations limit of 25 per cent except in cases covered by section 12(2) 10. With a view to expediting the disposal of applications filed by trusts for condoning the delay, the Board had passed a general order under section 119(2)(b) by which the Commissioners have been authorised to admit belated applications under section 11(2) read with rule 17.
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